Tuesday, February 28, 2006

How clean should the Ohio River be?

In the past thirty years or so tremendous efforts have been made to try and clean up the Ohio River. The Clean Water Act of 1972 was established to set forth regulations regarding the water quality of surface waters in the United States. Essentially, this affects the amount of bacteria legally allowed to be discharged into the Ohio River by residential and commercial citizens. The Ohio River Valley Water Sanitation Commission, an eight-state agency, has been established to improve the water quality of the Ohio River specifically. A recent proposal has been made to seek the allowance of higher levels of bacteria into the Ohio River following periods of heavy rain. This would mean an amendment to the Clean Water Act. It is said that these higher levels of bacteria are caused by the overflow of public and private sewer systems upstream. Supposedly the sewer systems do not have the ability to handle the amount of sewage imposed on it during the periods of heavy rain.
So now one must ask what should be done about this problem? Some have stated that the Act should remain at the standard that it is currently at as to not allow any further deterioration of the quality of the river water. However, ORSANCO (Ohio River Valley Water Sanitation Commission), has suggested that the Act should be amended because not many people are using the river water directly following periods of heavy rain anyway. They state that pollution standards are routinely being violated anyway and so that this amendment will bring the area closer to what is deemed to be realistically achievable.
If the standard were to remain the same then the question becomes how much will residential and commercial citizens have to pay in order to meet the standard. Put a different way one could ask... what are citizens willing to give up in order to keep the standards the same and would it be efficient. Proposals for an estimated $2.4 billion has already been delegated to improving the sewer systems in the Hamilton County portion of Ohio and Northern Kentucky over the next 20 to 25 years. Even though these systems will not help the here and now, it is believed by this author that imposing the same pollution standards after periods of heavy rain on the citizens would not encourage more clean up activity in the present, but instead discourage it. Consumers of the water from the Ohio River would probably be much better off if they would allow the money saved by not paying fines for excess pollution during periods of heavy rain, that is said to be unavoidable due to problems with the sewage systems, to be used in a positive way such as working towards figuring out how to better deal with the levels of bacteria present in the water systems today. So, this author would say to amend the Clean Water Act to allow extra bacteria to be introduced into the water system after periods of heavy rain unless it can be proved to be so harmful to the environment that it is just not acceptable.

Clean Coal

Xcel Energy has announced that it is making plans to convert to "clean coal." This will pose a serious issue for Colorado. This "clean coal" does not generally use anthracite in its conversion. Anthracite, which is the type of coal produced in Colorado and Wyoming, is an energy-poor, moisture-high substance. Clean coal is coal chemically washed of minerals and impurities, sometimes gasified, burned and the resulting flue gases treated with steam and reburned so as to make the carbon dioxide in the flue gas economically recoverable. The carbon dioxide can then be captured and stored instead of being released into the atmosphere. It makes a lousy energy source because when it's "cooked," there is not enough combustible material extracted into the gas to make anthracite efficient. This, however, will be of great benefit to the East Coast.

Ultimately, if this plan goes through Colorado will take a severe hit in coal consumption. As of last year, our own coal produced over 83% of electricity generated in Colorado: 91% of our coal was used for electricity. The number of coal miners is almost 3900. I don't have an exact dollar amount for coal, but mineral production was just over 5.56 billion, which is about 2.5% of the Gross State Product.

Some of the incentives for clean coal that have been provided through the Energy Act of 2005 include:
1. Authorization of loan guarantees for "innovative technologies" that avoid greenhouse gases, which includes clean coal.
2. Initiative to increase coal as an energy source while also reducing air pollution, through authorizing $200 million annually for clean coal initiatives, repealing the current 160-acre cap on coal leases, allowing the advanced payment of royalties from coal mines and requiring an assessment of coal resources on federal lands that are not national parks.
3. $1.6 billion in tax incentives for investments in clean coal facilities.

Pushing Solar Power, Wrong Time?

While President Bush is on his way to confronting the country’s addiction to oil: He’s being one upped by Republican governors promoting solar power. In his State of the Union address, Bush said he would increase the federal government’s research budget for solar power to $150 million, but the money will come out of other renewable energy projects. Meanwhile, Gov. Arnold Schwarzenegger has pledged a million solar rooftops in California by 2017, and in January a $2.8 billion rate hike for utilities was approved to pay for it. In New York, Republican Gov. George Pataki signed a bill last year offering up to $5,000 in tax credits to homeowners who install solar power equipment on their roofs.

Conservative politicians determined to embrace renewable energy may sound like an environmentalist’s dream world, but there’s a catch. Government money calls at the worst time in the solar industry’s economic cycle. In the last two years, the price of polysilicon, the basic material for most panels that turn photons from the sun into electricity, has more than tripled because of overseas demand. Polysilicon is made from silica, a mineral that’s cheap but that must be refined and processed. If the new subsidies were delayed by a couple of years, there would be time for new polysilicon factories to come online, and the government and solar eager homeowners would save a big chunk of money.

America’s solar industry also helps account for the price hike. U.S. solar energy starts from a small base, accounting for one-tenth of 1 percent of overall energy consumed domestically. But it has been growing at a rate of almost 40 percent a year for the last three years. The world supply of polysilicon will almost double when the new factories that manufacturers have started building are ready. Following the law of supply and demand, the price of the material should fall. Solar panels will probably be at least 20 percent cheaper in two years. Yet California’s $2.8 billion subsidy will be paid out to homeowners and businesses starting this year. Homeowners will get back close to half the cost of a rooftop solar panel system that costs about $25,000 and supplies about half the electricity needs of an average home.

Another reason to wait out the polysilicon price bubble is that the high prices are doing wonders for alternative solar power technologies that use less polysilicon, or none at all. Several recent scientific advances have brought other materials to the efficiency levels of polysilicon. Firms that are closet to market, have some production that has already started, in the thin-film photovoltaic cell. Instead of polysilicon, and it can be made on flexible rolls, which means it’s cheaper to produce than a polysilicon cell. If these technologies fulfill their laboratory promise, they’ll offer higher efficiency for less money.

It’s too bad that the timing of California’s program is off, because in other ways it’s cleverly structured. By extending over 10 years and gradually reducing subsidies as more solar panels are installed throughout the state, the program is designed to make the solar industry more predictable and stable, so companies can safely expand. As the industry takes advantage of economies of scale and passes savings along to consumers, the technology should become more cost competitive with fossil fuels. It may sound far off to imagine solar power costing about the same as electricity or gas, but it’s a hope that President Bush has said he shares.

In the meantime, if politicians want to spend wisely to promote power, they can invest in "big solar" solar power plants that wou8ld cover hundreds of square miles of desert, producing energy on a massive scale with mirrors that concentrate the heat of the sunlight to produce electricity. This technology has recently been able to produce electricity at a cost that’s almost with the same as fossil fuels (about 6 cents per kilowatt hour). The only raw materials needed for big solar plants are steel and aluminum, neither of which is priced high at the moment. Several southwestern utilities are already building such plants. The utilities would add more if state governments were to help fund them.

So what do you do if you’re a sunny state homeowner with an urge to go solar and you’re being offered an intoxicating subsidy? In the short-term, the most cost effective choice is probably a solar water heater. Though decidedly low tech, these systems are eligible for most state subsidy programs and promise to immediately shave 15 percent off most homeowners’ energy bills. In a couple of years, when the price of polysilicon comes down and alternative technologies come to market, you can spring for a set of solar panels for your roof.

Externality cost borne by whom?

Recently there has been much controversy over the subject of sewage spills into the Springs' main watershed, Fountain Creek. The creek which runs north/south through the entire city, along I-25, has been affected by Colorado Springs Utilities accidental leakages of raw sewage into the creek. The utilities company has been fined and urged to address the issue as soon as possible and been mandated in some instances to take immediate action fixing the problem areas. However, a recent development in the issue has taken an interesting turn.

In order to deal with the water pollution in the creek, the utilities company has proposed that a giant inflatable dam be utilized in order to effectively stop the sewage. This investment for the city will cost the utility users an average of 25 cents a month on the wastewater bill. My question is in regard to the inefficient internalization of the pollution externality. When a company takes the full responsibility for the pollution, they would normally take care of the cost. How is it that the cost associated with this preventative action is passed straight to the consumer? Would it not just be easier to tax the users directly rather than the transfer of payments from the builder to the utility company and then to the users? It may be my naivity as a Jr. Economist, but it would seem that the cost associated with the pollution should be taken care of by those primarily responsible for it, not those who simply utilize the services.

Why does it seem that Environmental Concerns are New?

Problems of environmental quality are not something new; in fact, history is filled with bleak examples of environmental degradation, from deforestation by ancient peoples to mountains of horse manure in urban areas in the days before automobiles. But today's world is different. For one thing, many people in economically developed countries, having reached high levels of material well being, are beginning to ask questions: What good is great material wealth if it comes at the cost of large-scale disruptions of the ecosystem by which we are nourished? More fundamental, perhaps, is the fact that with contemporary economic, demographic, and technological developments around the world, the associated environmental repercussions are becoming much more widespread and lethal. What once were localized environmental impacts, easily rectified, have now become widespread effects that may very well turn out to be irreversible. Indeed some of our most worrisome concerns today are about global environmental impacts. It is no wonder, then, that the quality of the natural environment has become a major focus of public concern. As we would expect, people have responded in many ways. Environmental interest groups and advocates have become vocal at every political level, especially in those countries with open political systems. Politicians have taken environmental issues into their agendas; some have sought to become environmental statespersons. Environmental law has burgeoned, becoming a specialty in many law schools. Thousands of environmental agencies have appeared in the public sector, from local conservation commissions to environmental agencies at the United Nations.
At the scientific level Environmental economics focuses on all the different facets of the connection between environmental quality and the economic behavior of individuals and groups of people. There is the fundamental question of how the economic system shapes economic incentives in ways that lead to environmental degradation, as well as improvement. There are major problems in measuring the benefits and costs of environmental quality changes, especially intangible ones. There is a set of complicated macroeconomic questions; for example, the connection between economic growth and environmental impacts and the feedback effects of environmental laws on growth. And there are the critical issues of designing environmental policies that are both effective and equitablenmental problems have become a focus for chemists, biologists, engineers, and many others.

Proposed Legislation Casts Net On Overfishing

The purging of our ocean water fish stocks is at an all time high. Coastal fisheries on the Gulf of Mexico, New England, Alaska, and the Northwest have all suffered from the absence of private property rights to fish stocks, a deficiency that offers little incentive for conservative fishing. An increase in technology and number of fleets, teamed with an everlasting demand for cod, tuna, marlin and other commercially favored fish puts the percent of over fished stocks at 25 percent, according to the United Nation’s Food and Agriculture Organization.
The United States policy concerning over fishing has included measures such as shortened seasons, limits per vessel per trip, and minimum size limits; however these precautions have all had adverse consequences. A two day season forces fishermen to buy bigger, faster boats, challenge dangerous weather, and degrade the efficiency by which fish are processed. A minimum size limit for red snapper in the Gulf of Mexico has resulted in the waste of millions of pounds of snapper caused when fishermen toss back fish too small.
Now the Bush administration is hoping new legislation will provide the changes needed to produce a more effective fishing market. The legislation involves assigning transferable catch quotas (or individual transferable quotas as Tietenberg refers to in chapter 13) to fishermen, an approach that will hopefully net a free market that accomplishes what restrictions, shortened seasons, and size limits could not.
The introduction of transferable quotas will limit each fisherman to a percentage of the total allowable catch set each season by fishery managers. A desire for increased or decreased limits can be met by buying or selling quotas from others in the industry.
Other countries already in the business of exchangeable fishing quotas have reported encouraging benefits; higher fishing incomes, reduced fleet excesses, higher product quality, safer fishing, and reduced over fishing are all advantages offered by the free market transfer.
The system surely offers more friendly competition than does a two day season that forces fishermen into dangerous waters. With the use of transferable quotas, fishermen can invest more time into practicing more efficient techniques. Extended seasons, fresher fish, and less waste are all benefits for producer and consumer alike.
The little guy need not worry. Transferable fishing quotas impose limits on how much quota individuals or companies can hold, so big corporations won’t buy out smaller ones. Another perk of the system is that regulators can control the total allowable catch, if a need to raise or lower the total arises.
In order to accept the efficiency of ITQs, there must be an understanding that they correct the market failures associated with inefficient methods of regulation. As noted before, other forms of regulation have resulted in dangerous competition caused by incentives for faster boats, over fishing, and challenging treacherous weather. However, ITQs avoid these downfalls by encouraging each holder to catch their share, meet an efficient amount allocated for their fishery, and transfer quotas within the industry to achieve the optimal level.
We have studied the use of transferable discharge permits as a good policy for regulating pollution. ITQs are a similar method in achieving an optimal allocation of resources, and the legislation supporting them should be backed in order to improve upon the fishing community and the problem of over fishing.

Monday, February 27, 2006

EPA Agreements Limit Fines

"In a first step toward setting firm guidelines on the monitoring of emissions from factory-style farms, the U.S. Environmental Protection Agency has reached agreement with 20 farms to collect air samples. In return, noncompliant operations will pay EPA a one-time fine ranging from $200 to $100,000. Ultimately, 2,681 Animal Feeding Operations (AFOs)- representing some 6,700 farms in 42 states will sign similar deals."
-Engineering News-Record (Feb. 13th, 2006)

The article is a look into a first step into controlling air pollution in a previously unmonitored industry. The policy is looking at air pollution as a negative externality. The EPA is charging a “one-time” fee for violators. This could pose a long-term environmental problem due to the fact that violators only would have to pay the fee one time, yet be allowed to continue to pollute at their previous quantity. A Coase Theorem policy might have better long-term results considering the negative externality. As it stands, all firms are operating at zero liability for their actions. The Coase Theorem would push firms into having more liability. It will be interesting to see how this problem will evolve.

Open Access Oceans

J.S. at Environmental Economics:
"The economist in me will continue to advocate for better management policies and incentive schemes to protect the ocean, because this is the sensible thing to do. But another part of me realizes that sometimes freedom means the conscious choice not to engage in certain acts, or indulge certain desires. This part of me will continue to use moral persuasion and reason to advocate that everyone give up eating fish and seafood from commercial sources (or even completely).

At the end of the day, regulation and public policy can only go so far (and should only go so far in free societies), leaving it up to us to take the final, perhaps most difficult, steps to protect the environment and the non-human world. Ultimately, only our individual choices, guided by our consciences, will lead us to a more expansive moral sphere where the non-human world is treated with greater respect and empathy. And the sooner we take a hard look and examine the chain of events behind the products we buy, the sooner we can end some of the most egregious forms of environmental destruction. There is no better place to start than with that fish fillet sitting in the grocery store case."

This is an interesting commentary that may seem more relevant to the 2nd course (Econ 430). But, perhaps, the discussion of policies concerning open the access ocean has some relevance to the policy issues concerning global warming. What are some of the ideas you think might cross over to global warming policy issues?

Saturday, February 25, 2006

It's Getting Warmer

Nobel prize winning economist Thomas Schelling offers commentary in the WSJ ($) on the uncertainties that are relevant to global warming:
"But the uncertainties are daunting: The best the IPCC can do is give us a range of possible warmings for any given increase in carbon dioxide concentration. And the upper bound of that range has been, for two decades, three times the lower bound -- an enormous range of uncertainty. On top of that are the uncertainties of what the change in temperature will do to climates around the world. And on top of that are the uncertainties of what those climate changes may do to the worlds we live in, and what people will be able to do to adapt successfully to what change is allowed to occur.

I'd buy insurance. I'd do it prudently, and without great alarm. Yet"

Wednesday, February 22, 2006

Useful Doodoo?

Across America, a common consensus seems to have been reached by Americans that recycling is a good thing. In most cases however, recycling turns out to be more costly than if we simply used up more of the resource. This is often true whether we look at recycling from an economic point of view or the point of view of environmental conservation. Paper recycling, for example, often causes more pollution than paper production because of de-inking, and it often costs more as well. In looking at recycling from an economic perspective, we want to know if the marginal social cost is less than the marginal social benefit. We know this if private companies can turn greater profits by recycling than without recycling, as long as no market failure occurs.

However, the government often gets involved in the process, subsidizing, advertising, mandating, or even fully providing the recycling of various products. such government interference should take place only if market failure exists. Such failure esists if a) a monopoly exists, (b) an externality (unintintional, nonmarket interaction) exists, or (c) the good that is traded is a public good, meaning it is rival in consumption and non-excludable.

First of all, no one has a monopoly on recycling. Secondly, if an externality exists, such as air pollution the recycling of a product should be subsidized or taxed, depending on whether the externality is positive or negative respectively (negative in the case of pollution). The implications of this could mean that the recycling of certain products, such as paper mentioned above, should be taxed, not encouraged! If sustainability produces an additional benefit to society not taken into account by consumers, this market failure would be dealt with here too. Finally, recycling does not provide a public good because recycled products are rival and excludable in consumption.

Having analysed when government involvement is acceptable or even necessary in recycling, I want to look at a case that seems to be an efficient amount of recycling. The link to FoxNews leads to a story about the recycling company in San Fransisco implementing a program to recycle pet feces from parks. The feces with be recycled for its methane, which can be sold as natural gas. This recycling company is a private entity (100% employee owned and operated according to its website), so government beauracratic involvement doesn't seem to be the cause here (though it says the city "asked" them to look into this, so they may be subsidizing this). Instead, it seems that a private entity has weighed the costs and benefits and determined that the benefits outweigh the costs, though the article mentions that in most cases, methane production from pet feces isn't very attractive economically, according to some experts. Here however, it seems the private company has a history of financial success in recycling. As long as the city government is not involved, at least not where it shouldn't be from an efficient perspective, then such recycling is efficient in San Fransisco. This also means there is an efficient amount of dog doodoo in parks. Who knew?

Also, if you want more information on recycling from an economic perspective, this link is a good read - http://www.econlib.org/library/Enc/Recycling.html

Tuesday, February 21, 2006

Bush Urges Funding for Alternative Energy

In the Washington Post there is a news article describing the President's speech yesterday:
"Democrats and some Republicans criticize the Bush energy plan as failing to sufficiently address a leading cause of U.S. dependence on imported oil: the fuel efficiency of cars, trucks and sport-utility vehicles. Under pressure from struggling U.S. automakers, which are losing ground to foreign competitors and shedding jobs at plants throughout this region, Bush has not proposed large increases in the gasoline mileage that U.S. automakers are required to achieve, known as corporate average fuel economy (CAFE) standards. Bush has supported slight increases for some light trucks and SUVs but stopped short of across-the-board changes advocated by many lawmakers and environmentalists that could significantly reduce oil consumption.

[ . . . . ]

As Bush spoke, crude oil prices rose as a result of rebel attacks in Nigeria that reduced output by Africa's largest producer, underscoring the volatility of the oil market. "Some of the nations we rely on for oil have unstable governments or fundamental differences with the United States," Bush said.

What government can control is the incentives it offers -- through tax breaks and direct investment -- to companies to produce new energy sources and energy-efficient products and to consumers who use them. The president's new budget calls for increased funding for research into new forms of ethanol production, hydrogen and hybrid technologies that reduce fuel consumption of automobiles by using electrical battery power to supplement gasoline. Bush said the nation is on the cusp of technological breakthroughs that will "startle the American people."

This is one area where there is broad bipartisan agreement in Washington, though regional concerns often complicate discussions over how much to spend on various new technologies. Midwestern lawmakers, for instance, often push for large tax breaks for ethanol produced from the corn grown in the region at the expense of investment in hydrogen or solar power. Bush said lawmakers should come together to boost energy incentives this year."
There are some issues suggested here that I think we should consider for the term project.

First, there is a reference to increasing the miles per gallon goals of the CAFE. Many people discussing energy and environmental policy place great emphasis on CAFE. How do you see CAFE from an economic point of view? Is the CAFE policy consistent with market failure? Is the CAFE policy consistent with well targeted policy to correct market failure?

Second, notice the reference to policy approaches that involve subsidies in some form. Take a look at some of the specific activities the President is talking about subsidizing. Do you think it is likely there are positive externality market failures that would be corrected by subsidizing such activities?

Third, note also that the President seems to motivate his discussion of the proposed policies as a concern for the relationship between "dependence on oil" and the country's national security. Is this concern consistent with a market failure? Is national security a public good perhaps? Even if the activities that are suggested for receiving subsidies do not directly seem to involve positive externalities, would this attention to national security concerns still provide a market failure justification for such policies?

Friday, February 17, 2006

generating plant and time induced media bias

The media blurb V.S. Reality,
In response to in class discussion about coal plant and mine.


Our knowledge was based entirely on a short blurb in an NPR broadcast the other day. Then I decided do a little research, I had a suspicion that there was more to the story! I decided to flesh out the idea a little, a little work goes a long way in less than an hour I found that there was more to the story and in a couple hours I found an audio clip of the same topic with more content. I found that the shut down had a very large number of variables. There was more to the story. It seems that the benefit and the cost was spread over many parties and the outcomes are going to be tightly intertwined with politics. The people who gained and the people who lost were in many more areas than I thought. I believe that we are going to have a hard time sorting a national energy policy if we don’t take all the factors we can into our model. The audio clip link here is a good 5 minute listen and worth it as it seems to flesh out the topic well I found a ton of text but this seems to cover more than any one article I have found. And you will remember our professor asking where the additional power-generating burden went which plant picked up the slack? That info I haven’t found. So keep an eye out.


I also found some other clips I think this is the one (I don’t have broad band at home so I cant check) that was our original source of knowledge for the event. You will see how darn narrow the focus and how biased it is. One thing I have grown to count on is the blurb factor. All our easily consumed news is so condensed there is only time for one position on a subject. They cant make a short segment flow properly if they try and show more facets of an issue. The media is in capable of holding our attention for very long so we are treated to really short very one-sided stories. Because to avoid boredom they dumb down and rapid-fire news at us so we are entertained enough to keep listening. I wish there was a back-story or a link for every blurb that lead to a complete story with more information on each side. I see it occasionally.


But for our national policy it seems that if we go into too fine of detail we will loose sight of the bigger macro picture. But as we step back it would be wise to keep the complicated interconnectedness of the economy and the environment in mind as we make a national policy.
Hope this helps in the paper

Wednesday, February 15, 2006

No Nukes Is Good Nukes?

You might be interested in this commentary by Glenn Reynolds.

Monday, February 13, 2006

Global Warming may cause the Next Iceage

While global warming is being officially ignored by the political arm of the Bush administration many groups and organizations are trying to get the point across. In quick summary, if enough cold, fresh water coming from the melting polar ice caps and the melting glaciers of Greenland flows into the northern Atlantic, it will shut down the Gulf Stream, which keeps Europe and northeastern North America warm. The worst-case scenario would be a full-blown return of the last ice age - in a period as short as 2 to 3 years from its onset - and the mid-case scenario would be a period like the "little ice age" of a few centuries ago that disrupted worldwide weather patterns leading to extremely harsh winters, droughts, worldwide desertification, crop failures, and wars around the world. Economicly speaking this would reek havoc on the entire world bringing such a dominant world to its knees. So how could the Bush party completely ignore a problem as big as this you ask? That is question that many US citizens have asked themselves in hope to firgure out what the Bush party has been thinking for the last 6 years.

Global Warming may cause the Next Iceage

While global warming is being officially ignored by the political arm of the Bush administration many groups and organizations are trying to get the point across. In quick summary, if enough cold, fresh water coming from the melting polar ice caps and the melting glaciers of Greenland flows into the northern Atlantic, it will shut down the Gulf Stream, which keeps Europe and northeastern North America warm. The worst-case scenario would be a full-blown return of the last ice age - in a period as short as 2 to 3 years from its onset - and the mid-case scenario would be a period like the "little ice age" of a few centuries ago that disrupted worldwide weather patterns leading to extremely harsh winters, droughts, worldwide desertification, crop failures, and wars around the world. Economicly speaking this would reek havoc on the entire world bringing such a dominant world to its knees. So how could the Bush party completely ignore a problem as big as this you ask? That is question that many US citizens have asked themselves in hope to firgure out what the Bush party has been thinking for the last 6 years.

Friday, February 10, 2006

Clear Skies... "Caps" on emissions

The Clear Skies Initiative will cut air pollution 70 percent, using a proven, market-based approach that will save American consumers millions of dollars.”
“Build upon the 1990 Clean Air Act’s acid rain program, America’s most successful clean air law in the last decade, and encourage the use of new pollution control technologies.”

Consumers save because it’s an “encouragement program”. It’s another way of trying to get people to create new innovations to better reduce pollution. Since the creation of the Clean Air Act our pollution has declined by 29% (which is based off of 6 pollutants), yet our economy has grown by 160%. While it has been slightly successful since its creation, it can’t keep pace with our economy. The more rapidly we grow the more pollution we create. The new Initiative is just that, a “push” on the economy to pollute less, OR to create new technology that will help create things with less pollution emission.

First the program need to have the EPA establish new targets based off in-depth research that must first be conducted. Second it wants to reduce the emissions on 3 key pollutants (SO2,NOx, and Mercury). They believe this can be done by adopting a comprehensive, integrated, multi-pollutant approach. Step three is to set national, federally enforced emission limits for each pollutant. They believe that this will in turn create the incentive to create technology that will lower emissions and therefore save money. Step four is all about putting caps on the use of current energy resources, allowing for a long term planning for effective and efficient energy sources.

The Clear Skies Initiative is a more “marker-based” program that rewards innovation and ensuring results. They believe that by setting “caps” on the allowed amount of emissions companies will be more inclined (more like forced) to create technology to allow them to stay under the cap, but produce more at the same time. They also have a trading system that will be set up. This system is set for each company, but they are free to trade "allowances" in the market, as long as the stay with in the required limit. Again this is another way of baiting them to find better ways to run their equipment and therefore benefiting from selling/trading off their unneeded allowances. It says that “This flexibility lets businesses figure out the cheapest way to reduce emissions while government sticks to setting the overall emission cap at a level that guarantees that industry meets ambitious air quality goals.”

Overall I happen to agree with the ideas they are proposing, as long as the “cap” is a reasonable amount. Also I would want proof that they pollutant they are studying as the ones we need to worry about. Are they looking at it as a whole? Can the market itself generate an efficient level of pollution? How would u know when dealing with firms as a whole? Maybe specific firms need different “caps” or allowance levels. How will you know what level will work right with other firms? The ideas themselves are workable, but only if we find the efficient level for each firm. We would need to know the marginal cost curve and marginal damage curve for EVERY firm. That would require a long period of time and TONS of research. And even then I might have to adjust it to get to the right level. Especially if you think about the so called “cheapest method of control” for each firm, they vary. It would require very detailed information from each industry, but also among the plants IN the industry. The authorities assigning the limits don’t have enough info to know what would be best. The plant managers/workers are less inclined to share the info they do have because they would then have to be forced to live up to a different standard.

Lets say that we have all the information we need to set these limits. We implement the caps and allowances for each industry and we see change in a few fields. We see new technology and designs. We then decide to change the caps/allowances. Doing that alone makes planning for the future more difficult. Not all firms and industries are capable of reaching our new cap because the new designs do not work for everyone. Then we have industries moving in different directions. We may have big gaps in terms of technology and emissions. Then we have a bigger problem. Those industries behind are polluting more than the industries that have improved technology. We now have to worry about putting too much pressure on the industries and possibly destroying it. We are treading on very unsure ground.

I think its one of the best ideas we have come up with to better controlling the amount of emissions and the pollutants in the air. However I do see some major flaws in the implantation of it. Again it would require a good deal of research. Which they do not talk about how that will be paid for. I know that the initiative is only based on 3 pollutants, which is another downfall to it. Why only 3? Yes I know this is only a “start” and they are said to be the most harmful ones, but I think we could try to broaden the amount. I’m pretty sure that there are more than 3 harmful pollutants. I suppose that in the LR the technology will allow companies to produce more, as well as more efficiently. But what happens when we do reach our efficient level? Will we become stagnant? What if the EPA push it further and go past the efficient amount of pollution? We all know the government can tend to be “over achievers” and do what is not always in the best interest of the economy.

Seems like the are moving in the right direction though.

Tuesday, February 07, 2006

Biofuels: Alternative Fuel Sources

The comments from the President's State of the Union address last month concerning our need to be less reliable on foreign oil prompted a number of online articles regarding alternative fuel sources:

NY Times article "Corn Power Put to The Test" describes how researchers in Iowa are looking for an efficient process of producing ethanol. Their challenge is not to rely natural gas used in the production of ethanol, but to create enough natural gas to turn the corn into ethanol at a lower cost by using cow manure. The production of a form of natural gas inside the cows intestines (and duplicated in the factory) helps to create a higher ethanol content at a lower production cost.

Another article on the Oak Ridge National Laboratory Review entitled "Biological Ways of Producing Ethanol". discusses the use of a variety of alternative fuel sources and reducing the cost of developing ethanol. Their challenge is to determine the most efficient source with which to develop ethanol; corn, switchgrass, or hybrid poplars. Researchers are using a two step process; first the enzymes breaking down the corn/switchgrass, then the bacteria ferment and excrete the ethanol. The effects of bacteria that break down the corn or switchgrass into excretions of ethanol can be distilled and used as a biofuel. The researchers want to combine both steps into one to reduce production costs, however they cannot regulate the temperatures for both the enzymes and microbes simultaneously. Enzymes work best at 55 degrees, and the microbes work best at 35 degrees.

The third article discusses switchgrass as the most efficient energy producing ethanol: "Oklahoma Researchers Test Switchgrass for Biofuel Production". They are trying to prove that switchgrass is the least cost and most efficient alternative fuel source to produce. They found that the net energy produced from corn is about 21%, whereas the net energy from producing switchgrass is about 344% (1998 figures). With such an enormous difference in energy, they are now trying to determine the most efficient method of creating the ethanol by using enzymes (similar to the research in the previous article). The process of developing the ethanol by breaking up the plants components, then using the enzymes to break the switchgrass into glucose and pentose molecules. The solution then is fermented and distilled into ethanol.

There are a number of economical drawbacks to developing the ethanol from any alternative source, one being the cost of producing the ethanol at this point in time. For the most part, the marginal social costs (MSC) greatly outweigh the marginal social benefits (MSB) of creating and using biofuels instead of gas. The first law of thermodynamics -matter energy is neither created nor destroyed- plays an important part on the research currently being conducted. The matter energy for corn and switchgrass is being transferred into the ethanol form, but the switchgrass is retaining more of its energy matter than corn. This transfer of energy seems to make switchgrass somewhat more efficient. However, economic inefficiency becomes more of a problem when discussing the production costs with regards to: the capital and labor needed to grow the corn and other such products; farmers disagreeing to long term contracts to produce switchgrass instead of other less managed products; the cost of maintaining the factory; and the management of the farm and the equipment. Researchers do not know at this time what species of switchgrass to harvest or what part of the corn is the most productive for ethanol.

I think that we have a long way to go before any of this research or production can become reliable as alternative fuel sources. Fortunately, the more that we consider radical ideas such as these we will be in a better position to lessen our use of foreign oil.

Thursday, February 02, 2006

Exporting Pollution?

Alex Tabarrok:
"One reason pollution hasn't been exported may be that the dirtier (older) industries have more political power and have resisted tarrif reductions. The authors find, however, that even if one eliminated all tarrifs on manufactured goods pollution would still not be exported.

It's not that this wouldn't be a good idea, it's just that it so happens that poor countries don't have a comparative advantage in producing the goods that require a lot of pollution. Of course, if we tax pollution in the United States at higher levels it will make more sense to export it - an interesting dilemma."

Wednesday, February 01, 2006

Expected costs of a nuclear meltdown

Perhaps one of the topics to consider for our Energy/Environmental Policy project is whether or not there should be greater reliance on nuclear power plants. John Whitehead writes on an important issue with respect to the evaluation of nuclear power generation:
"Risk perception researchers have found that when dealing with low probability, high loss risks (like nuclear accidents), people don't handle expected values very well [E(loss) = p x Loss; where p is the probability of the event happening]. People tend to overestimate the probability of the bad event and focus on the high loss."

[ . . . . ]

A simple estimate of the annual risk of a nuclear meltdown (which is worse than a nuclear accident [think Homer Simpson]) is the ratio of the number of accidents divided by the product of the number of nuclear plants and the number of years of operation. There have been two nuclear accidents in the history of the world: Three Mile Island and Chernobyl (Wikipedia says that there have been five other potential meltdowns). The denominator of the ratio is about 12,000 (obtained from an "ignorance is bliss" naive Google search, better estimates are welcome). Therefore, one estimate of the probability of a nuclear accident is 0.000167 or a 1 in 6000 annual chance.

To put this in perspective, suppose there was a 1 in 6000 chance that the U.S. loses 1% of its annual GDP (1% of $12 trillion is $120 billion). The expected loss, given a 0.000167 probability is about $3.33 million (Dan Kolb's annual salary).

Let's hope that when we're considering the risk tradeoffs that we appropriately weight the losses by the probabilities. The expected loss of a nuclear plant near Raleigh is not a Chernobyl, as if it were a sure thing, but something much, much lower."

Global Warming Science & Policy

Dr. Roy Spencer:
"I have some familiarity with these restrictions on government employees, as they were a major reason I resigned from NASA over four years ago. But back then, the shoe was on the other foot. NASA knew I was not supportive of the popular gloom-and-doom theory of global warming, and before any congressional testimony of mine on the subject, I was 'reminded' that I could speak on the science, but not on policy matters. Well, it turns out that expert witnesses on this contentious subject are almost always asked by a senator or congressman, 'What would you do about policy if you were me?' When the question came, I dutifully dodged it.

I am not sure, but disobeying my superiors would probably have been grounds for dismissal, if they wanted to press the point. In Jim Hansen's case, even if this was theoretically possible, I suspect the political fallout would be enormous, as he as done more than any scientist in the world to impress upon the public's consciousness the potential dangers of global warming.

Hansen is a smart, productive public servant that is on a crusade for what he believes in. I understand why he believes as he does -- but I still disagree with his conclusions, both scientific and policy wise.

For example, Hansen has been able to devise a scientific scenario whereby all warming in recent decades can be attributed to mankind. I believe, however, he has ignored possible natural mechanisms, for instance a change in cloudiness during the same period of time."
Dr. Spencer's commentary speaks to the interplay between science and politics. What I would like for you to consider is that science alone cannot make public policy choices. Value judgments are required. I have been very explicit about the value judgments used by economics to choose between alternative public policies. Consider also, that in our system of political economy, there is a group of people who get to make public policy choices, and they are the people elected to Congress and to be President.

Note that Dr. Spencer refers to the policy issues involved with global warming as being contentious. There is an old adage in politics that goes something like this: In politics rhetoric is reality. Consider what happens when science becomes part of the politics of a public policy issue. Rhetoric can become reality, and then it seems pretty hard to sort out the rhetoric from an objective evaluation of "just the facts." How can you judge what "science knows" about something like global warming when knowledge seems to be presented through the prism of politics?